Investing for capital growth and
income

There are two main benefits to be gained by
investment in property:

Realizing capital growth as the value of your
property increases

Rental yields from your property

Capital Growth

Property investors who have done their homework and
bought a quality property in a desirable location at the right time are ideally
positioned to reap the reward of a substantial capital gain on the future sale
of their asset. Capital growth can also offer you the opportunity to invest in
other asset classes, like shares, using the built-up equity in your property.

In this way, you can minimize risk by creating a
balanced investment portfolio via diversification – which means not having all
your investment eggs in one basket.

Concentrating all your investment dollars in just one asset class is
considerably to be unwise. At any time, investments in some of the four asset
classes will perform more strongly than the others. By investing across as many
assets as possible, it is much more likely that part of your portfolio will be
turning in above average returns at any one time. You may also avoid the large
losses that are likely if you invest in just one class of asset.

Income Stream

Property investment offers an ongoing source of net
income ( gross rental minus costs ) for those investors who haven’t borrowed
heavily and have avoided the burden if high loan repayments – especially if
interest rates are heading upwards.

A property that is well-located and active to long-term renters is more likely
generate a regular income stream, especially when rental market is strong and if
periods of vacancy are kept minimum. Extended vacancies can be costly for
investors because you will still be required to meet all your costs including
interest repayments, rates, maintenance and property management fees.

Rental yields

Over time, rents in most Australian States have
risen steadily – with slight ‘hiccups’ every now and then. Rents therefore
provide a dependable ongoing income stream and rental returns rise with
inflation. Rental growth for residential property tends to be linked to the
Consumer Price Index (CPI), but they can vary from State to State and within
cities.

As long as you set the rent at a reasonable level (
in line with the market average) instead of trying to squeeze out a few extra
dollars, a quality property in a sought-area will help to ensure strong rentals
returns and increase the likelihood of full-time tenancy.

Income from rental returns is more constant than income earned from other
assets. Owners of shares, for example, receive twice-yearly dividend payments (
a share of the company’s after-tax profit ). Since dividend amounts depend on
size of the company’s profit they can vary significantly. If company profits are
down, sometime there are no dividends at all.